What is Cash Flow?

Cash flow is the net amount of cash and cash-equivalents being transferred into and out
of a business. At the most fundamental level, a company’s ability to create value for
shareholders is determined by its ability to generate positive cash flows, or more
specifically, maximize long-term free cash flow (FCF).

 Positive cash flow indicates that a company is adding to its cash reserves,
allowing it to reinvest in the company, pay out money to shareholders, or settle
future debt payments.
 Cash flow comes in three forms: operating, investing, and financing.
 Operating cash flow includes all cash generated by a company's main business
activities.
 Investing cash flow includes all purchases of capital assets and investments in
other business ventures.
 Financing cash flow includes all proceeds gained from issuing debt and equity as
well as payments made by the company.
 Free cash flow, a measure commonly used by analysts to assess a company's
profitability, represents the cash a company generates after accounting for cash
outflows to support operations and maintain its capital assets.
Financial analysis is the key to determining the viability and potential profitability
of any venture.
A business valuation is a general process of determining the economic value of a whole
business or company unit. Business valuation can be used to determine the fair value of
a business for a variety of reasons, including sale value, establishing partner ownership,
taxation, and even divorce proceedings. Owners will often turn to professional business
evaluators for an objective estimate of the value of the business. Working
capital represents a company's ability to pay its current liabilities with its current assets.
Working capital is an important measure of financial health since creditors can measure
a company's ability to pay off its debts within a year.
Working capital represents the difference between a firm’s current assets and current
liabilities. What Is a Liquid Asset?
A liquid asset is an asset that can easily be converted into cash in a short amount of
time. Liquid assets include things like cash, money market instruments, and marketable
secu

Businesses record liquid assets in the current assets portion of their balance sheet.
Examples of Liquid Assets

Examples of liquid assets held by both individuals and businesses include:

 Cash

 Money market assets

 Marketable equity securities (stocks)

 Marketable debt securities

 U.S. Treasuries maturing within one year or actively traded in the secondary

market

 Mutual funds

 Exchange-traded funds (ETFs)

 Accounts receivable

 Inventory

For example, a real estate owner may wish to sell a property to pay off debt obligations.
Real estate liquidity can vary depending on the property and market but it is not a liquid
market like stocks. As such, the property owner may need to accept a lower price in
order to sell the property quickly. A quick sale can have some negative effects on the
market liquidity overall and will not always generate the full market value expected.

hat Are Noncurrent Assets?

Noncurrent assets are a company's long-term investments for which the full value will
not be realized within the accounting year. Examples of noncurrent assets include
investments in other companies, intellectual property (e.g. patents), and property, plant
and equipment. Noncurrent assets appear on a company's balance sheet.

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Noncurrent Assets

Understanding Noncurrent Assets

Noncurrent assets are also referred to as long-term assets. Noncurrent assets are
capitalized rather than expensed, meaning that the company allocates the cost of the
asset over the number of years for which the asset will be in use instead of allocating
the entire cost to the accounting year in which the asset was purchased. Depending on
the type of asset, it may be depreciated, amortized, or depleted. 

KEY TAKEAWAYS

 Noncurrent assets are also known as long-term assets.

 Noncurrent asset costs are allocated over the number of years the asset is used.
 Noncurrent assets are on the balance sheet under investment; property, plant,
and equipment; intangible assets; or other assets.
Balance Sheet Classification
The assets section of the balance sheet is segmented according to the type of asset
quantified (current assets, PP&E, other assets, etc.). The leading section is "current
assets," which are short-term assets that can be converted into cash within one year or
one operating cycle. Current assets include items such as cash, accounts receivable,
and inventory. Noncurrent assets are always classified on the balance sheet under one
of the following headings: investment; property, plant, and equipment; intangible assets;
or other assets. Investments are classified as noncurrent only if they are not expected to
turn into unrestricted cash within the next 12 months of the balance sheet date.
Property, plant, and equipment—which may also be called fixed assets—encompass
land, buildings, and machinery including vehicles. Finally, intangible assets are goods
that have no physical presence. Although they may be created, such as a patent,
intangible assets may also arise from the sale or purchase of business units.

Other Noncurrent Assets

Other noncurrent assets include the cash surrender value of life insurance. A bond
sinking fund established for the future repayment of debt is classified as a noncurrent
asset. Some deferred income taxes, goodwill, trademarks, and unamWhat Is
Shareholder Equity (SE)?
For corporations, shareholder equity (SE), also referred to as shareholders' equity and
stockholders' equity, is the corporation's owners' residual claim on assets after debts
have been paid. Equity is equal to a firm's total assets minus its total liabilities.

Formula and Calculation of Shareholder Equity

Shareholders’ equity=total assets−total liabilities

he steps to calculate shareholder equity are as follows:

1. Locate the company's total assets on the balance sheet for the period.
2. Total all liabilities, which should be a separate listing on the balance sheet.
3. Locate total shareholder's equity and add the number to total liabilities.
4. Total assets will equal the sum of liabilities and total equity.

CORPORATE FINANCE & ACCOUNTING    FINANCIAL STATEMENTS

Shareholder Equity (SE)
By ADAM HAYES

 Reviewed By BRIAN BARNIER 

 Updated Jul 9, 2020

What Is Shareholder Equity (SE)?

For corporations, shareholder equity (SE), also referred to as shareholders' equity and
stockholders' equity, is the corporation's owners' residual claim on assets after debts
have been paid. Equity is equal to a firm's total assets minus its total liabilities.

Retained earnings is part of shareholder equity and is the percentage of net

earnings that were not paid to shareholders as dividends. Retained earnings should not
be confused with cash or other liquid assets. This is because years of retained earnings
could be used for either expenses or any asset type to grow the business.
Shareholders’ equity for a company that is a going concern is not the same as
liquidation value. In liquidation, physical asset values have been reduced and other
extraordinary conditions exist.

Formula and Calculation of Shareholder Equity

\begin{aligned} &\text{Shareholders' equity}=\text{total assets} - \text{total liabilities}
\end{aligned}Shareholders’ equity=total assets−total liabilities

The formula above is also known as the accounting equation or balance sheet equation.
The balance sheet holds the basis of the accounting equation.

The steps to calculate shareholder equity are as follows:

1. Locate the company's total assets on the balance sheet for the period.
2. Total all liabilities, which should be a separate listing on the balance sheet.
3. Locate total shareholder's equity and add the number to total liabilities.
4. Total assets will equal the sum of liabilities and total equity.
For some purposes, such as dividends and earnings per share, a more relevant
measure is shares “issued and outstanding.” This measure excludes Treasury Shares
(stock owned by the company itself).

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Shareholders' Equity

What Shareholder Equity Can Tell You

Shareholder equity can be either negative or positive. If positive, the company has
enough assets to cover its liabilities. If negative, the company's liabilities exceed its
assets; if prolonged, this is considered balance sheet insolvency. 

For this reason, many investors view companies with negative shareholder equity as
risky or unsafe investments. Shareholder equity alone is not a definitive indicator of a
company's financial health; used in conjunction with other tools and metrics, the investor
can accurately analyze the health of an organization.

All the information needed to compute a company's shareholder equity is available on

its balance sheet. Total assets include current and non-current assets. Current assets
are assets that can be converted to cash within a year (e.g., cash, accounts receivable,
inventory, et al.). Long-term assets are assets that cannot be converted to cash or
consumed within a year (e.g. investments; property, plant, and equipment; and
intangibles, such as patents).

Total liabilities consist of current and long-term liabilities. Current liabilities are debts
typically due for repayment within one year (e.g. accounts payable and taxes
payable). Long-term liabilities are obligations that are due for repayment in periods
longer than one year (e.g., bonds payable, leases, and pension obligations). Upon
calculating the total assets and liabilities, shareholder equity can be determined.

Shareholder equity is an important metric in determining the return being generated

versus the total amount invested by equity investors. For example, ratios like return on
equity (ROE), which is the result of a company's net income divided by shareholder
equity, is used to measure how well a company's management is using its equity
from investors to generate profit. 

What Is a Leverage Ratio?

A leverage ratio is any one of several financial measurements that look at how
much capital comes in the form of debt (loans) or assesses the ability of a company to
meet its financial obligations. The leverage ratio category is important because
companies rely on a mixture of equity and debt to finance their operations, and knowing
the amount of debt held by a company is useful in evaluating whether it can pay off its
debts as they come due. Several common leverage ratios are discussed below.

 A leverage ratio is any one of several financial measurements that assesses the
ability of a company to meet its financial obligations.
 A leverage ratio may also be used to measure a company's mix of operating
expenses to get an idea of how changes in output will affect operating income. 
 Common leverage ratios include the debt-equity ratio, equity multiplier, degree of
financial leverage, and consumer leverage ratio.
 Banks have regulatory oversight on the level of leverage they are can hold.

5. he acid-test, or quick ratio, compares a company's most short-term assets to its

most short-term liabilities to see if a company has enough cash to pay its
immediate liabilities, such as short-term debt.
6. The acid-test ratio disregards current assets that are difficult to liquidate quickly
such as inventory.
 7. The acid-test ratio may not give a reliable picture of a firm's financial condition if
the company has accounts receivable that take longer than usual to collect or
current liabilities that are due but have no immediate payment needed.
8. The Formula for the Acid-Test Ratio
9. \begin{aligned} &\text{Acid Test} = \frac{ \text{Cash} + \text{Marketable
Securities} + \text{A/R} }{ \text{Current Liabilities} } \\ &\textbf{where:} \\
&\text{A/R} = \text{Accounts receivable} \\ \end{aligned}Acid Test=Current
LiabilitiesCash+Marketable Securities+A/Rwhere:A/R=Accounts receivable
10.

An assembly line is a production process that breaks the manufacture of a good into
steps that are completed in a pre-defined sequence
An assembly line is a production process that breaks the manufacture of a good into
steps that are completed in a pre-defined sequence. Assembly lines are the most
commonly used method in the mass production of products.They are able to reduce
labor costs because unskilled workers could be easily trained to perform specific
tasks. determining what individual tasks must be completed, when they need to be
completed and who will complete them is a crucial step in establishing an effective
assembly line.

 Mass production is the manufacturing of large quantities of standardized

products, often using assembly lines or automation technology.
 Mass production has many advantages, such as producing a high level of
precision, lower costs from automation and fewer workers, higher levels of
efficiency, and prompt distribution and marketing of an organization's products.
 Henry Ford, founder of the Ford Motor Company, developed the assembly line
technique of mass production in 1913
A merger is an agreement that unites two existing companies into one new company.
There are several types of mergers and also several reasons why companies complete
mergers. Mergers and acquisitions are commonly done to expand a company’s reach,
expand into new segments, or gain market share. All of these are done to
increase shareholder value. Often, during a merger, companies have a no-shop
clause to prevent purchases or mergers by additional companies.

Mergers are most commonly done to gain market share, reduce costs of operations,
expand to new territories, unite common products, grow revenues, and increase profits
—all of which should benefit the firms' shareholders. After a merger, shares of the new
company are distributed to existing shareholders of both original businesses. Types of
Mergers
Conglomerate
This is a merger between two or more companies engaged in unrelated business
activities. The firms may operate in different industries or in different geographical
regions. A pure conglomerate involves two firms that have nothing in common. A mixed
conglomerate, on the other hand, takes place between organizations that, while
operating in unrelated business activities, are actually trying to gain product or market
extensions through the merger.

Companies with no overlapping factors will only merge if it makes sense from a
shareholder wealth perspective, that is, if the companies can create synergy. A
conglomerate merger was formed when The Walt Disney Company merged with the
American Broadcasting Company (ABC) in 1995.

Congeneric
A congeneric merger is also known as a Product Extension merger. In this type, it is a
combining of two or more companies that operate in the same market or sector with
overlapping factors, such as technology, marketing, production processes, and research
and development (R&D). A product extension merger is achieved when a new product
line from one company is added to an existing product line of the other company. When
two companies become one under a product extension, they are able to gain access to
a larger group of consumers and, thus, a larger market share. An example of a
congeneric merger is Citigroup's 1998 union with Travelers Insurance, two companies
with complementing products.

Market Extension
This type of merger occurs between companies that sell the same products but
compete in different markets. Companies that engage in a market extension merger
seek to gain access to a bigger market and, thus, a bigger client base. To extend their
markets, Eagle Bancshares and RBC Centura merged in 2002.

Horizontal
A horizontal merger occurs between companies operating in the same industry. The
merger is typically part of consolidation between two or more competitors offering the
same products or services. Such mergers are common in industries with fewer firms,
and the goal is to create a larger business with greater market share and economies of
scale since competition among fewer companies tends to be higher. The 1998 merger
of Daimler-Benz and Chrysler is considered a horizontal merger.

Vertical
When two companies that produce parts or services for a product merger the union is
referred to as a vertical merger. A vertical merger occurs when two companies
operating at different levels within the same industry's supply chain combine their
operations. Such mergers are done to increase synergies achieved through the cost
reduction which results from merging with one or more supply companies. One of the
most well-known examples of a vertical merger took place in 2000 when internet
provider America Online (AOL) combined with media conglomerate Time Warner.

KEY TAKEAWAYS

 Mergers are way for companies to expand their reach, expand into new
segments, or gain market share.
 A merger is the voluntary fusion of two companies on broadly equal terms into
one new legal entity.
 The five major types of mergers are conglomerate, congeneric, market
extension, horizontal, and vertical.
  congeneric merger is where the acquiring company and the target company are
in the same or related industry but have different business lines or products.
 The two companies involved in a congeneric merger may share similar
production processes, distribution channels, marketing, or technology.
 A congeneric merger can help the acquiring company to quickly increase its
market share or expand its product lines.
 The overlap between the two companies in a congeneric merger can create a
synergy where the combined performance of the merged companies is greater
than the individual companies themselves.
  Preferred stockholders have a higher claim on distributions (e.g. dividends) than
common stockholders.
 Preferred stockholders usually have no or limited, voting rights in corporate
governance.
 In the event of a liquidation, preferred stockholders claim on assets is greater
than common stockholders but less than bondholders.
 Preferred stock has characteristics of both bonds and common stock which
enhances its appeal to certain investors.

What Is a Dividend?
A dividend is the distribution of some of a company's earnings to a class of its
shareholders, as determined by the company's board of directors. Common
shareholders of dividend-paying companies are typically eligible as long as they own
the stock by the ex-dividend date. Dividends may be paid out as cash or in the form
of additional stock.

 A dividend is the distribution of some of a company's earnings to a class of its

shareholders, as determined by the company's board of directors.
 Dividends are payments made by publicly-listed companies as a reward to
investors for putting their money into the venture.
 Announcements of dividend payouts are generally accompanied by a
proportional increase or decrease in a company's stock price.
A dividend is a token reward paid to the shareholders for their investment in a
company’s equity, and it usually originates from the company's net profits. While
the major portion of the profits is kept within the company as retained earnings–
which represent the money to be used for the company’s ongoing and future
business activities–the remainder can be allocated to the shareholders as a
dividend. At times, companies may still make dividend payments even when they
don’t make suitable profits. They may do so to maintain their established track
record of making regular dividend payments.

The board of directors can choose to issue dividends over various time frames
and with different payout rates. Dividends can be paid at a scheduled frequency,
such as monthly, quarterly or annually. For example, Walmart Inc. (WMT) and
Unilever PLC ADR (UL) make regular quarterly dividend payments.

Top-Level Managers

As you would expect, top-level managers (or top managers) are the “bosses” of the
organization. They have titles such as chief executive officer (CEO), chief operations
officer (COO), chief marketing officer (CMO), chief technology officer (CTO), and chief
financial officer (CFO). A new executive position known as the chief compliance officer
(CCO) is showing up on many organizational charts in response to the demands of the
government to comply with complex rules and regulations. Depending on the size and
type of organization, executive vice presidents and division heads would also be part of
the top management team. The relative importance of these positions varies according
to the type of organization they head. For example, in a pharmaceutical firm, the CCO
may report directly to the CEO or to the board of directors.

Top managers are ultimately responsible for the long-term success of the organization.
They set long-term goals and define strategies to achieve them. They pay careful
attention to the external environment of the organization: the economy, proposals for
laws that would affect profits, stakeholder demands, and consumer and public relations.
They will make the decisions that affect the whole company such as financial
investments, mergers and acquisitions, partnerships and strategic alliances, and
changes to the brand or product line of the organization.
Middle Managers

Middle managers must be good communicators because they link line managers and top-level management.

Middle managers have titles like department head, director, and chief supervisor. They
are links between the top managers and the first-line managers and have one or two
levels below them. Middle managers receive broad strategic plans from top managers
and turn them into operational blueprints with specific objectives and programs for first-
line managers. They also encourage, support, and foster talented employees within the
organization. An important function of middle managers is providing leadership, both in
implementing top manager directives and in enabling first-line managers to support
teams and effectively report both positive performances and obstacles to meeting
objectives.

First-Line Managers

First-line managers are the entry level of management, the individuals “on the line” and
in the closest contact with the workers. They are directly responsible for making sure
that organizational objectives and plans are implemented effectively. They may be
called assistant managers, shift managers, foremen, section chiefs, or office managers.
First-line managers are focused almost exclusively on the internal issues of the
organization and are the first to see problems with the operation of the business, such
as untrained labor, poor quality materials, machinery breakdowns, or new procedures
that slow down production. It is essential that they communicate regularly with middle
management.

Team Leaders

A team leader is a special kind of manager who may be appointed to manage a

particular task or activity.  The team leader reports to a first-line or middle manager.
Responsibilities of the team leader include developing timelines, making specific work
assignments, providing needed training to team members, communicating clear
instructions, and generally ensuring that the team is operating at peak efficiency. Once
the task is complete, the team leader position may be eliminated and a new team may
be formed to complete a different task.
  A return is the change in price on an asset, investment, or project over
time, which may be represented in terms of price change or percentage
change.
 A positive return represents a profit while a negative return marks a loss.
 Returns are often annualized for comparison purposes, while a holding
period return calculates the gain or loss during the entire period an
investment was held.
 Real return accounts for the effects of inflation and other external factors,
while nominal return only is interested in price change. Total return for
stocks includes price change as well as dividend and interest payments.
 Several return ratios exist for use in fundamental analysis.

A bond's term to maturity is the period during which its owner will receive interest
payments on the investment. When the bond reaches maturity, the owner is repaid its
par, or face, value. The term to maturity can change if the bond has a put or call
option.

 Bonds are units of corporate debt issued by companies and securitized as

tradeable assets.
 A bond is referred to as a fixed income instrument since bonds traditionally
paid a fixed interest rate (coupon) to debtholders. Variable or floating
interest rates are also now quite common.
 Bond prices are inversely correlated with interest rates: when rates go up,
bond prices fall and vice-versa.
 Bonds have maturity dates at which point the principal amount must be
paid back in full or risk default.

When companies or other entities need to raise money to finance new projects,
maintain ongoing operations, or refinance existing debts, they may issue bonds
directly to investors. The borrower (issuer) issues a bond that includes the terms
of the loan, interest payments that will be made, and the time at which the loaned
funds (bond principal) must be paid back (maturity date). The interest
payment (the coupon) is part of the return that bondholders earn for loaning their
funds to the issuer. The interest rate that determines the payment is called
the coupon rate.

When a bond matures, the investor is repaid the full face value of the bond. A
bond can be sold at par, at a premium, or at a discount. A bond purchased at par
has the same value as the face value of the bond. A bond purchased at a
premium has a value that is higher than the par value of the bond. Over time, the
value of the bond decreases until it equals the par value at maturity. A bond
issued at a discount is priced below par. A type of discount bond traded in the
markets is the deep-discount bond.
A deep discount bond will typically have a market price of 20% or more below its
face value. An issuer of a deep discount bond may be perceived to be financially
unstable. The bonds issued by these firms are thought to be riskier than similar
bonds and are, thus, priced accordingly. Junk bonds are examples of deep-
discount bonds. Bondholders may also find themselves holding deep-discount
bonds when the credit rating of the issuing company is suddenly downgraded.

 The payback period refers to the amount of time it takes to recover the
cost of an investment or how long it takes for an investor to reach
breakeven.
 Account and fund managers use the payback period to determine whether
to go through with an investment.
 Shorter paybacks mean more attractive investments while longer payback
periods are less desirable.
 The payback period is calculated by dividing the amount of the investment
by the annual cash flow.
 
Doctor of Philosophy in Management Sciences - 3 Years

17.5/18 years of MS/MPhil or equivalent education from an HEC-recognized university

in relevant discipline with a minimum CGPA of 3.00/4.00 (Semester System) or 60%
marks (Annual System). NTS-GAT (Subject) or GRE (Subject) Test passed with
minimum 60% marks or BU Admission Test (70% passing marks). Initial Research
Proposal/Statement of Purpose is required at the time of PhD admission.